Observations focused on the problems of an underdeveloped country, Venezuela, with some serendipity about the world (orchids, techs, science, investments, politics) at large. A famous Venezuelan, Juan Pablo Perez Alfonzo, referred to oil as the devil's excrement. For countries, easy wealth appears indeed to be the sure path to failure. Venezuela might be a clear example of that.

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The non-existing automobile policy of the Venezuelan Government goes brainless

September 25, 2011

Donkeys in downtown Caracas, circa 1920

Starting this week, the Venezuelan Government will cap the prices at which cars can be sold in the country. This is yet another silly and failed policy by a Government who has done little in terms of defining any policy for the sector.

The Government did not have a policy in place before exchange controls were imposed in 2003, nor has it had a policy since.

Before exchange controls, it increased taxes on cars, such that all cars pay a basic 30% custom taxes, which becomes higher by 10% for luxury cars, which are defined as those that sell for more than US$ 30,000. After controls, the Government has gone from a free for all of imports at the preferential official exchange rate, to limited foreign currency for car parts or car imports.

In the middle, the Government did all sorts of things that simply did not help. Like allow any automobile brand to come in and give the importers cheap controlled dollars. For local manufacturers this created problems, it is hard to compete with imports, when your local costs are seeing 25% inflation year after year. Everything from fancy American cars, to German cars, to cheap Chinese imports, got cheap dollars until the numbers of cars imported (and the dollars!) simply soared to levels that were simply absurd. And the Government took notice. (They apparently weren’t watching)

Oh yeah! In the middle we were promised cheap Iranian and Chinese cars, made in Venezuela, that would break the back of all other car companies. We are still waiting.

Of course, the Government does not ask itself the basic question: Why do people want so many cars?

The answer is simple: cheap gas and cheap relative car prices relative to inflation. Cheap gas means that the cost of fueling the car is irrelevant when you buy or drive a car in Venezuela, courtesy of a crazy 8.5 US cents per gallon policy by the Venezuelan Government, since Chavez has yet to increase the price of gas even once during his twelve years in office. (Yes, with 1,300% inflation in those years!)

The second reason is that on a relative basis, cars are cheap. Twelve years ago, when Chavez took power, one dollar cost Bs. 0.575, given that inflation has been around 1,300%, that same dollar should cost around Bs. 7.45, instead the Chavez administration gives car companies dollars at Bs. 4.3 for the import of cars and parts to make cars. On top of that, in 1999 car companies could buy all the dollars they wanted to make cars, today those dollars are limited, i.e. the number of cars being sold is quite limited.

But even worse, the number of cars being sold is limited in an environment where the Government is printing money. How much money? Let me put it in perspective. In 1999, all of the Bolivars in the country would have bought 700,000 $20,000 cars. Today, all of the Bolivars out there would buy over 4,000,000 cars at the same price. That’s a factor of seven times!

Ever heard of supply and demand?

Not the Chavistas. For them it is all speculation. Thus, the “new” automobile policy is aimed at that. The solution is to regulate how much car companies can earn and they have magically decided to fix that at 10%. With 25-30% inflation that sounds like a sure no brainer so that that there will be fewer and fewer cars for sale in the upcoming years. Less investments, fewer companies, fewer cars.

It is indeed a revolution, just like Cuba, Venezuelans will be driving beaten down cars, or more romantically for a brainless revolutionary, they will be riding the donkeys or mules that their grandparents rode like the picture above.

123 Responses to “The non-existing automobile policy of the Venezuelan Government goes brainless”

“we were promised cheap Iranian and Chinese cars, made in Venezuela, that would break the back of all other car companies. We are still waiting.”
Yes, waiting and waiting. -I want to purchase a natural gas powered automobile. I was hoping Venezuela would develop natural gas stations…
Also, I wondered why Venezuelan joint venture with Iran did not mention building trucks-as trucks are needed-and vans, -not just small cars..
Hoping for good things has been a true waste of time…
Brings me back to the Veniran tractors- where are they?
(Tried to get friends to start assembling solar panels for small projects…
everyone’s scared..)

Don’t forget that the government also offered tax breaks for people’s first car, under a temporary government program that applied only to economy cars.

I would argue that price-controlled parking is every bit as pernicious as price-controlled gasoline. In both cases, drivers simply don’t pay the cost of their car.

Along with cars being relatively cheap, they are also among the few inflation-protected investments available in the country. Savings accounts and other bolivar-denominated securities lose value to inflation. The average person can’t buy foreign currency or securities. Few homes are on the market, and few people can save up the 50% down payment. Hence, people buy cheaper, but long-lived assets, preferably ones that also offer a status boost: jewelry, fancy watches, boob jobs. And cars.

The secondary market is a mess. Since the government restricts the price of new vehicles, people who win the lottery and get themselves a vehicle can often leave the car lot and immediately sell their car for twice as much as they paid. The fierceness of this secondary market will increase with the price controls. It will likely make Venezuela a destination for contraband vehicles, particularly from Colombia. It will make sense to go there, buy a car, and then sell it in Venezuela.

Charles, most cars sold in Venezuela today have natural gas tanks. And many PDVSA stations provide vehicular natural gas for free. However, the one person I know with a vehicle like this has never used the natural gas tank, because gasoline is also essentially free. The tank is just a big thing that occupies her car’s trunk. I suppose it would be useful if she were a drug smuggler, as it’s made of heavy steel and probably resists x-rays. But she’s not.

I really have difficulty understanding what you mean when you state that on a relative basis cars are cheap in Venezuela. Relative to what? To what cars used to cost in the past? Cars have always been mightily expensive in Venezuela. You ask why do people want so many cars implying that they are cheap, and that there is a rush to buy them. Really? An avalanche of demand? Relative to what? What percentage of the population can truly afford to buy a car? The answer is very easy: just take a look at how many cars are bought per year in Venezuela. That demand is not satisfied does not mean that it is huge or even what would be expected of a population needing a personal form of transportation (and, boy, isn’t that a necessity in a country with a dismal system of public transportation), but rather that the supply does not cover that demand. If there is demand for 20,000 cars per year but the supply is restricted to 10,000/year of course that spells trouble. But this trouble only affects a tiny percentage of the population.

In a country where the per capita income is just a fifth of what it is in the U.S., how can a Toyota Corolla selling for DOUBLE the price that it costs in the U.S. be considered cheap? And since most people cannot buy a car with cash upfront, doesn’t the 25% or so interest rate that banks charge make the car even more costly to acquire? In the case of a Corolla, the final price would be a whooping $40,000! In the U.S., I can buy a BMW 3 series with some extras plus insurance with that kind of money. How many people in the U.S. can afford to buy a $40,000 car? Very, very few, and they certainly earn better than Venezuelans. So, unless I am missing or don’t understand some financial minutia, I fail to see the merit of your argument.

I also fail to see the argument of cheap gas as an stimulator of car buying. Granted that in the U.S. gas cost is one thing to consider when buying a car. For instance, edmunds.com has a nice feature called True Cost to Own. There, they factor in the price of gas together with the cost of the car and other related expenditures. But even if you factor out the cost of gasoline in Venezuela, cars are still much more expensive than in the U.S., so even if gas is cheap, the main consideration would always be the price of the car. If you don’t have the money to buy a car, what good does it do you to live in a place where gas is cheap? I mean, for God’s sake, how many people in Venezuela have that kind of money. Very, very, very, very, very few, like, less than the top 1% earners.

I don’t know exactly why cars have always been so expensive in Venezuela. Some years ago, I bought a Ford Escort. This car was designed in Germany, but assembled in Venezuela. It would be long to list the amount of problems this car had. As a final desperate measure, I even took the damn thing to the Ford plant in Valencia to try to repair it. That was futile. And the freaking thing was more expensive to acquire than in Germany! Of course, I swore not to buy a Ford car ever, a promise that I intend to keep until I am dead. I believe that the main cause for this high cost of cars has always been taxes. Now, how incredibly stupid is that. In a country with low per capita income, the government taxes cars up to a point in which they price them out of the market! An then, they create programs like the “regulados” back in the day, or its stupid equivalent today. I have read that similar situations occur throughout Latin America.

In Venezuela, the same car fetchs double that amount. But since only the tiniest amount of people can afford to pay for it in cash – something true everywhere else, even in the U.S – then the price skyrockets to $40,000. But wait, it gets worse: that price does not include insurance, maintenance (sigh…) and repairs (God have mercy on you when you have to deal with one of the most inept class of people in the world: Venezuelan mechanics).

Thus, even if in the U.S., the buyer has to spend almost $8,000 in fuel, he/she still ends up paying less for the car and for car-related expenditures.

JMA – That helped me to understand a little better. Thanks my friend.
Now, how much are you calculating the financing? Many of the current brands are selling with 0% and I would say that the most for a new car is would be….3% max?

When I read the post I thought the same thing: “Cheap? Really”?
Just to compare, here I can find many models of domestic and japanese cars starting at $13k. The new Fiat is starting at $15k for example. Also, most of the companies offer up to 0% (you read right, zero) up to 60, to 80 months! And many other offers like that.
Yet, a lot of people prefer to buy used – which I honestly don’t understand – because cars devaluate at the very moment you take them out of the dealership.
So I also disagree that cars are “cheap” in Venezuela.
Another thing that I don’t understand: my mom bought a car a couple of years ago – cash – and she had to wait for it about 4 to 6 months!! Why is that? Is it a common thing or is it because is a japanese car? I didn’t get it.
Here you usually have your car customized, colour you want, detailing, within a week.

They are cheap compared to the purchasing power of the people, they were more expensive in 1998 than today on relative terms, cars have always been expensive in Venezuela because of the custom duties (40% in most cases and the VAT), right there you have 50% surcharge that is artificial. But if you have had the same job since 1998, your salary will surely have gone up more than a factor of 6, which is what cars have gone up. Inflation on the other hand is up a factor of 13. That makes cars cheap.

You see, I am going to have to think about that. I am quite illiterate in economics and I read your postings mostly to learn something.
I go as far as to 2+2=4. LOL.
I’m always making numbers to compare what would be the cost of my life there and here, exchanging at the official rate. Cars and housing are more expensive. Food is about the same. I pay tons more in taxes, utilities and gas. The inflation rate last year was 2.4%.
But as far as I know my salary is much higher than my colleagues’ over there. That is as far as I go.
Anyway, I need to sit down and figure this one out.

I am ignorant of high finance myself …but no matter, like most women I can stretch a dollar quite well…..Venezuela is expensive in the long run, due to problems of crime, upkeep, accidents, bad repairs etc….all that factors in.

Guys, don’t forget that the “Law for the protection of the Salary” -or whatever its exact name is- was passed via the enabling law which was 1) Unconstitutional as it was given to the President by a lame duck National Assembly and 2) It’s justification was to allow Chavez to deal with the housing crisis after the heavy rains in December.

I admit to voting AD as the lesser of two evils but the quality of Venezuelan governments has been going downhill from Betancourt/Leoni. I keep saying it can’t get worse and every election has proven me wrong. Can we go lower than the present gutter? Yes, we could have Adan Chavez leading a military/drug-cartel dictatorship fiercer than his brother’s.

>>>Venezuelans may be angry at the government. But I’m pretty sure it’s not because of it’s price controls.

How can you expect ordinary people to understand macro economics if half the professional economists have it wrong? :lol:

Yes, people like price controls, a fact that was made clear to me the day one of my neighbors complained about them being removed by CAP. At the time I didn’t understand her. A book about markets I read recently made the reason clear. There are costs associated with bargain hunting. With price controls you get the same low price everywhere so you don’t have to waste time hunting for good prices which was exactly her complaint. But “what is not seen” (Frederic Bastiat) are scarcity, higher that needed prices, and market inefficiencies.

Today cars are expensive, but even with all Government taxes and fees, they were quite cheap from 2004-2007, as the Government kept the Bs. 2.15 per US$ rate and the parallel market was over twice that. I remember my nephew buying a car in US$ at the swap rate cheaper, a Hond fit, for less than in the US. I bought a Honda CRV for 20k in 2005 with all the periquitos. I sold it for more when I left in February of this year. But the point is that even today those with purchasing power are being subsidized and cars re cheaper on a relative scale than in 1998 compared to other things.

It is a way of protecting your money, it is an asset. When Chavez got to power a squared meter in Caracas was around US$ 2,000, it is the same today at the parallel rate. However, a car is cheaper, because the imports are at the official rate of exchange. Cars for the rich are subsidized, as simple as that.

The amount of car related money I spent in Venezuela was astronomical next to what I pay here in the US.

Obviously travel is limited here in the US because of high gas prices, but everyday use of a car is far cheaper than in Venezuela.

Anyone, no matter how poor can afford a car here in USA.We also have excellent mechanics( if you shop around for affordable ones) who keep your car in good shape.Dealers give some amazing deals on almost new cars.If you buy a year old car, you get it for a faction of the cost, at a dealership.They count on your using their overpriced repair shops to make up the difference, but you don’t have to use them.

When you consider the state of the roadways in Venezuela with the potholes, t mountainous driving( hard on alternators), the constant stopping and starting of a car in traffic, the heat,the cheap repairs,etc etc…it ends up being a great luxury to have a car in Venezuela,not to mention dangerous….I used to fear stopping for obvious reasons.

I’ll take my high gas prices any day, to the expense and dnager of maintaining a car in Venezuela.

Miguel, you forget something else: anyone, including Chávez’s two cockrels, Fidel and Hugo, can get a driving licence in Venezuela, provided one gives some dosh to the authorities. The tests are a farce. There are people who wouldn’t be able to drive anywhere else but in some areas of Nigeria and Congo.

I don’t know how it is in the rest of Latin America, but in Europe once your car gets, say, 4 years old, and always the first time, you have to take it to a testing place every single year. There they test everything: from tyres to exhume and pollution levels to brakes to distribution to security belts. If your car has a problem, you have 2 weeks’ time to repair it or you are out. If you do not have insurance and you haven’t returned the car plates you can be in real trouble in many places, not to mention what happens if you do drive after all.

So: driving a car is a costly business in Europe.
I reckon it is similar in North America.

It is not that costly here, but we do have to pass inspection in most states.

Most people who are semi responsible, however never allow their car to get beyond the point of not have the money to repair it for inspection.

Not being able to pay for decent breaks, working lights etc, should be a reason not to be allowed to drive.

Here in the US not having a car pretty much damns you to unemployment unless you live in some big cities, so people makes sure they budget for this expense.

We have to pay tax, registration , inspection and a minimum of upkeep for safety reasons, but in the end it is WAY cheaper than in Venezuela..

I have a Buick which is one of the most amazing cars in the Universe.I paid 13,000 dollars for it.It has almost 200,000 miles on it, and when you look under the hood, there are no leaks, and it still drives like a new car.

If I were to live in Caracas today, in NO way shape or form would I own a personal vehicle, except a cheap one for emergency purposes only.

OK. by your own confession, you are writing this post having in mind only those with purchasing power, for which purchasing a car may indeed be an investment because to them a difference of tens of thousands of dollars may not be much, and the car still appreciates. According to a table of wealth distribution in Venezuela that I came across several years ago in a newspaper, only a tiny fraction of the people included could be branded as those with purchasing power. It doesn’t really matter if you had a job back in 1998, does it? What matters is the fact that your job provided you an income good enough to buy the car.

But the reality is that cars are priced out of the market for the vast majority of Venezuelans. I think this is unquestionable. Now you mention that at least there is a 50% artificial surcharge on cars. I see. The socialist government, in its ever insatiable lust for income, makes cars to be priced out of the market, favoring mostly the rich and screwing the middle class and the poor, and then scrambles to create programs selling “affordable cars” that happen to be utter crap. Brilliant. It’s no wonder why everywhere outside LA, people have a hard time understanding “realismo magico.” Someone would have much difficulty trying to make this up.

If I earn minimum wage in the U.S., I can buy an used car to go to work. Can a McDonald’s worker in Caracas say the same? Didn’t think so.

That’s a different problem, the same way that those that can afford housing are limited. It does matter if you have had a constant job since 1998, most people above the level of secretary in any office in Caracas have a car and even some secretaries do. That level has gone down in the last few years with lower relative (I carefully used the word relative in the post) prices and cheaper financing.

Save for some high ranking executive secretaries driving several year-old junk, the ones with purchasing power to buy a new or used car are still part of a tiny minority. If this post is just about them and their problems, well, so be it.

Look in 2007 500,000 cars were sold in Venezuela, that is not a small number in a country of 26 million people. We are talking about a single year!!!

That is what this post is about. If a car costs for example, twenty monthly salaries and all of a sudden in five years it costs ten, they are cheap on a relative scale, as simple as that. There are close to five million cars in circulation in Venezuela, that is one for every five people, the penetration seems to be much, much larger than you are assuming it to be.

Now, this is motor vehicles, including those used in mass transit and goods, not only cars.

Taking into consideration that the turn over rate must by necessity be much lower than in an industrialized country, I really have a problem with that 500,000 thousand figure, of a sixth of the whole automotive existence.

As you can see, according to them the total amount of cars is a bit more than 4,000,000, as opposed to my 3,200,00 figure. However, Venezuelan statistics have to be taken with a grain of salt. Despite that, it would be really stretching it to state that on a given year 500,000 vehicles were bought, because there is just not enough purchasing power to do so. There may have been a flood of dollars coming into the country that year, but let’s not assume that everyone had equal access to it. Look at the antiquity figures. It kind of disproves the fact that 1/8 of the “parque automotor” got renewed in a single year, doesn’t it?

Car companies sold 500,000 vehicles, why do you want to argue with that, it is a sum of what each company reported selling. There is a Automobile Association. Each month they report how much each member sold. Veneconomy adds it up and assumes some attrition. What’s “bad” about that. Car sales did not go up magically, prices were cheap, no matter who had the access to buying the cars.

>>>Cheap gas means that the cost of fueling the car is irrelevant when you buy or drive a car in Venezuela, courtesy of a crazy 8.5 US cents per gallon policy by the Venezuelan Government, since Chavez has yet to increase the price of gas even once during his twelve years in office. (Yes, with 1,300% inflation in those years!)

Don’t forget that when CAP tried to rationalize the price of gas he lost his job. Cheap gas is cheap populist politics, another subsidy except the rich benefit as much or more than the poor from it. Unintended consequences. But Chavez does not want to lose his fat head.

One can safely say that chavismo is the continuation of AD/COPEI economic policies: price controls, exchange controls, expropriation of private property without due payment, hate of private enterprise, buying votes with subsidies, failed industrial planning, and so on. We need a capitalist government but the chances of that are less that a snowball’s in Hell.

And talking about cheap gas, it’s the same policy used in Iran to the point they have to import gasoline. An oil exporting country importing gasoline. That’s the result of absurd populist policies.

“One can safely say that chavismo is the continuation of AD/COPEI economic policies: price controls, exchange controls, expropriation of private property without due payment, hate of private enterprise, buying votes with subsidies, failed industrial planning, and so on. We need a capitalist government but the chances of that are less that a snowball’s in Hell.”

Exactly. Not very difficult to come to that conclusion, is it? The only difference is that these chavista guys are pumping steroids. Again, Douglas North and his limited-access society concept comes to mind. Actually, the chances that a snowball does not melt in hell are much better. Talk about people marching blindly to its own demise.

And, when I talk about the vast majority of Venezuelans, I include professionals whose qualifications would earn them a fine quality of life anywhere else in the world. That includes, yes, doctors. I have known many that had to go to work using public transportation, an indignity taking into consideration the state of the system, but even more so after a grueling on-call straight 36 hours working. Of course, that is unthinkable everywhere else, well, at least, in civilized countries.

Meanwhile, some uneducated bloke who becomes friends with some government official signs a juicy contract to provide something and makes a lot of money out of it. There you go. He can buy any car he wants.

A few years ago, I heard my father stating to some friends that all of Venezuela’s economic problems would end if Chavez got out of power, to which all of them agreed. Of course – right there – there it is. Failing to acknowledge that Chavez is not the problem … but the consequence.

Well, Doctors have not done well under Hugo. But let me give you two examples: In 2004-2007 sales of taxis and luxury cars soared. The Government was giving importers cheap dollars to bring both. BMW and Mercedes had record years, like 5 times more than ever in their history, so did most of the Korean car manufacturers that sold the white taxis, all of them imported, none made in Venezuela.

Today they are not as “cheap” on a relative basis, for the simple reason that the dollar went from Bs. 2.6 to Bs. 4.3 in January, but think about the dollar being Bs. 8.5 last year in may when the parallel market was stopped and the official rate at the time was Bs. 2.6, that means that cars were being bought by car companeis at only three times the price of the dollar in 1998, but inflation had been 10 times, that is the definition of cheap on a relative basis.

You state this as though this is something new. Venezuela’s economic policies have been “brainless” for years, beginning even before Chavez. The only recent difference has been the heavy-handedness and capriciousness of government edicts.

I disagree, there were flashes, not long before Chavez, of attempting to rationalize the economy, under CAP and under Caldera. PDVSA used to plan everything rather well and had policies in place and an economic offfice that calculated things. Petkoff made use of that office quite a bit and I wis we could have brains like Naim, Rodriguez and Torres in Government.

Yes, there were. During CAP’s first reign they hired my management consulting firm to do the “reorganización administrativa” of one of the many government owned companies. ;) We did not have bribe anyone to win the bidding contest but we did have to pay off lesser bureaucrats to get the contract through the approval bureaucracy. :(

PDVSA was the exception that proved the rule. It was run by technocrats trained by the private oil industry but, being an “elite,” Chavez had to get rid of them. You yourself have stated how your agency went down the drain forcing you to resign.

CAP’s removal of price controls and specially his raising gas prices cost him his job, even AD turned against him in a vain attempt at survival. Unfortunately CAP’S good intentions were overpowered by his imperial manner. He did not know how to sell his policies to the people. BIG mistake!

What might have been an even bigger mistake was his postulation for a second term. He learned nothing from Betancourt. Neither did Caldera who could have been the second “best” politician after Betancourt. He blew it totally with the chiripero. By killing off the younger generation they killed off their parties. Frankly, Luis Herrera and Luscinchi were utter trash. Chavez is worse than trash, he is a willful destructor.

“CAP’s removal of price controls and specially his raising gas prices cost him his job, even AD turned against him in a vain attempt at survival. Unfortunately CAP’S good intentions were overpowered by his imperial manner. He did not know how to sell his policies to the people. BIG mistake!”

That is exactly right. And the fact that in many people’s minds the corruption of his first term was still fresh made it even more difficult to sell the critically needed changes in the economy.

Before Chavez, PDVSA wasn’t “the government”. Now it is, and it is as brainless as the government. As for the “flashes”, they obviously were not sufficient to overcome the institutional brainless inertia of the Venezuelan Government.

Back in 1991, I was one of several involved in a “dog and pony show” (as sales trips are called in banking and related fields) in Venezuela. One of the potential customers (for Canadian treasuries) was PDVSA. I had never before been associated with anyone from this firm. So I didn’t know what to expect. Well, I was flabbergasted. I might as well have dropped in on a corporate in Connecticut. It was a far cry, too, from the personnel at the Banco Central de Venezuela, and from the more typical bombast from executive levels at another bank, now failed. On a smaller scale, I later dropped into the offices of this españolete with whom I chatted, he showing his gun, telling me that everything is managed by dogs. I mentioned that not everything, for instance, PDVSA and the metro. He countered that he was not about to patronize anything 10 metres below, when nothing worked above that level.

A donkey would be a good option because of the traffic and deteriorating conditions of the roads that destroy a car. Plus, the donkey could be consumed as a last resort when the butcher shops are bare.

The problem is that it would cost more to feed the donkey than fuel the car, and the donkey would be easier to steal.

According to Veneconomy (unfortunately I have the latest issues in Caracas) at the end of 2007 there were 3.8 million “vehicles” in the road in Venezuela. In 2010 only 125,000 cars were sold, in 2009 about 240,000, in 2008, I dont know but I estimate at least 240,000, so we have to add 600,000 to the 3.8 million in Dec 2007, that gives you 4.5 million with 10-15 thousan cars being sold per month this year. .

There is another thing to consider, the cost of maintenance. I have figured the cost of keeping my 14 year old car of 1,00 – 1,25 Bsf / Km including insurance (10 -12% per year if you can get it). That is $ 0,25 per km or $ 0.37 per mile, definitely not cheap.

For example overhauling and automatic gerabox will cost 15,000 BsF. roughly $ 3,500 at 4,30 Bsf. /$. In US nobody fixes old cars if the repair is above $ 500 to $ 750, here you have to since i still is less expensive to fix an old car than to buy a less used car.

In the case of gasoline, prices are subsidized, but that is no true for motor and transmisison oils, they are almost at US levels (for example 4.3 Bs / lt or 1,00 / qt, SAE 20 -50 W).

So, it looks like 2007 was an anomaly in terms of car sales, that may have been due to the increase in oil prices. Note that in 2004, when things weren’t so bad, only 134,354 units were sold. The point being that save some extraordinary circumstance, like the huge increase in oil prices that occurred from mid 2007 until mid 2008, a normal yearly turn over for the Venezuelan economy would be way below 491.899 units … like less than half that amount.

Government joint venture assembly plants (Venirauto for ex.) can get dollars at 2.15 Bsf. / $ while regulra plants like Chrysler, GM, Ford, Mitsubishi and Toyota get them at 4.30 Bsf. / $, thats one of tehr esons that Venirauto cars are less expensive …

All of these years are anomalies, that is the point, by importing cars at the official rate cars sold soared. The number of cars today is limited, but again, in terms of purchasing power they would be cheap relative to 1998. If you let the dollar float, it would go to Bs. 8 or so, cars would be almost twice as much by letting prices go to market, they would no longer be cheap.

Carolina, yes, cars made in Venezuela can be cheaper and are made in Venezuela, Ford, Toyota, Chrysler, GM, others all make cars there, however most of the parts are imported. The problem is that with 30% inflation per year and the parts subsidized, labor costs can get expensive, depending on the exchange rate and ho artificially low it is kept. Right now the lack of parts is the main problem for them, they get approvals erratically and limited. I think some of these companies stick around only because they think long term.

I have an older made in Venezuela Toyota Corolla. Original parts are either non-existent or outrageously expensive. I do happen to have an excellent mechanic but I have gone through my fair share of terrible ones. Things are so bad that one has to be “friends” with the grocer, the mechanic and the parts supplier. Supply and demand is breaking down in favor of “trust” and “friendship.” That’s when you know for sure the economy is in the tank.

Interesting observation. But I find a similarity in an economy that, while smaller than the U.S.’s, is not in the tank. It goes like this: After searching for a trustworthy mechanic, and after experiencing several rip-offs, you finally find a mechanic that is competent and fair. You instantly want to bond with that person, and never patronize any other mechanic, if for no other reason than to avoid the feeling of being ripped off.

I think there is where my main problem is: I’m always thinking up front costs only.. Maintenance costs, parts, insurance and gas are not, for me, part of the “value” of a car, is what you pay to use it. At the end, good maintenance will only extend life of a car, but won’t add up value, as selling price, to it. I think.
For me, it’s like adding the cost of dry cleaning to a dress.
I may have to go back and read all the postings again….

Well, the purpose of a car is not necessarily to sell it. If yours conks out every so often and you have to pay through your nose to keep it moving, you are simply losing money.
Petrol can be forgotten for the moment in Venezuela, of course…but the rest?

I remember some time ago when I picked up a Venezuelan relative at the airport here. I had forgotten to tank, so I had to stop at the petrol station. Although I had told my relative about prices in Europe many times, she just kept staring at the numbers pass in absolute horror.
She said: one thing is to hear and read about it and another to actually see it. Incredible!

She knew how bad it is for the economy, but most Venezuelans, including and particularly the ones who don’t benefit from this subsidy at all think it is great Venezuela has such low prices.

The value of a car can be quite relative.If I totaled my car in an accident, since it is an old car, the insurance company would only give me the book price for it which would not be much.Technically all cars only depreciate here in the US.However if I have maintained the car in good shape,by selling it on my own I might get twice the book price.

I think it makes sense to include the maintenance of something when you think of overall value.Like comparing whether or not it is more profitable to rent or own a home.There is no reason for Venezuelans to think only about gas prices when there are so many factors that collide to make their lives more expensive in the long run- factors that relate to car ownership.

I had a mechanic in Caracas who was a Saint, he would drive half way across town to rescue me and my car.One time he took my car home to his house in the barrios to change a gasket, and stayed up all night guarding it from malandros.There were folks who wanted to erect a statue in his name in Caurimare, as the hero of Caurimare.

If it were not for Nelson, most of us would not have been able to afford a car!

This particular mechanic was part of the overall feasibility of our having a car, which under most circumstances would have been way too difficult and expensive in Caracas.

There are good mechanics everywhere- who can work on older vehicles-
it’s the newer ones…not enough trained techs with the tools and
computer, and ability to test sensors -for example..
I sort of liked the “socialist car” retro concept -except -it did not become
a reality-I believe very soon most cars in Venezuela will be from China..
even though Venezuelans desire the big US gas hogs…

That depends, try to sell a badly maintained car or one that is s”smoking” oil at 1 quart per 500 kms, nobody will buy it because they have to make a big investment afterwards…

If you try to insure a car with dents or paint scratches, you will have a “deducible” (deductible”) in the insurance policy, toward that part of the car; in case you try to make an insurance claim. For example, if a dent is valued a 700 BsF., you have to pay the first 700 BsF: if try to make a claim with the insurance company on that part of the car.

Insurance and maintenance are required if you want to keep the value of the car.

In theory, cars with higher mileage lose value due to wear and tear, but a well kept car with high mileage may be worth more than a low mileage, bur badly maintained car. Check here a Tucarro.com the Cavailer being sold at 71.000 and the one at 42.000:

“most cars sold in Venezuela today have natural gas tanks. And many PDVSA stations provide vehicular natural gas for free. However, the one person I know with a vehicle like this”

Maybe it is the same one I know-actually my wife saw it first..
Everyone I know -whether new or old does not have natural gas tanks…

Last I read-15,000 CNG vehicles in Venezuela- almost all are “fleet vehicles”
Lastly- one of the deals with Argentina-in 2006 -involved building seamless tanks for CNG in Argentina- and also Chavez signed agreements sourcing
parts for conversion kits for CNG from Argentina. I wonder if this was a good
investment. For example- why not build them in Venezuela.

As to autoparts- my nephew sources most parts from Colombia and Panama
as parts are difficult to find and expensive in Venezuela.

Government did not stop giving Cadivi dollars to Autoparts manufacturers, but delayed and delayed the payments… The parallel market helped but it was shut down on May 2010.

There are may obstacles:

Certificado de No Produccion (non production Certificate) , lasts 6 months and takes 2 months to request, but you can only request 1.5 months before…

Solvencia Laboral (Work Solvency) l: If one of you employees makes a labor claim against you, and the claim is not solved when your solvency ends (I think they last 12 months) then you are shut out of the cadivi web page

Miguel, you should ask your friends in government or industry because Toyotas imported directly from Japan 3000 and 5000 KIAS of Ecuador, the latter to be assigned to relatives of the members of the poliburo red mienbros of PSUV, investigates a little and you will be surprise.

I know about those, the rules of the “people” are different than those for the Government and the boliborgeois. We are talking two different worlds, two different sets of rules. I even bet these people pay very low prices, like, exactly the FOB price at Bs. 4.3.

In 1997, you could buy a car like a 4 door Chevy Cavalier at 9.300.000, which at the exchange rate (497 Bs/$) was $ 18.700; today with that money, at 4.3 Bsf/$ ( 80.460 BsF.) you could not buy the cheapest car available (a Chevy Spark valued at 108.000 BsF.).

But on the other hand today your salary in dollars is probably less than half of what it was in 1998 so Miguel may have a point there ….

I dont care at what price they get them, they have to pay salaries and expenses in Bs. with 30% inflation. Whether it is cheap or not, is a matter at what price YOU can get it and the only Bs. that existed a year and half ago was Bs. 8.5 per US, that is the only reference dollar that exists in my mind, the rest does not exist for mere mortals, Let me put it this way, I will buy all the dollars you want at Bs. 6.5, can you deliver?

The answer is you can’t, nor at Bs. 7 or Bs. 8, maybe 8.5, that is the only Bs. that really exists for you, any other comparison is not a matter of opinion, it is simply wishful thinking.

Do you know why assembly plants were established in Venezuela in 1948 many years before local content was required ? My opinion is that for a certain level of production (lets say more than 2,000 – 5,000 vehicles per year) it is less expensive to bring the cars disassembled due to freight costs and assemble here. Of course, this requires a logistic infrastructure that has to be accounted for, and may not be economic wise for low productions per year (less than 2,000, for example). A local assembly plant is not very different from an assembly plant in US or Canada ( know, I have had the opportunity to see them)

Later in the 1960´s the government decided that an increase in local content parts could be an incentive for more industries (and jobs), so Autoparts industries were developed with assistance form the assembly plants, starting with windshield, batteries, tires, and it probably reached its peak in the mid 80´s, at 30 – 35%. More local content requirements in combination with more vehicle models would drive the price of cars up, due to lack of economy of scales. The production peak was reached n 1978, (around 200,000)

Each new Government would start a new local content policy, trying to go beyond the 30 -35 % with little success, ans starting with exchange controls in 1983, local assembly volumes have been steady at 120,000 – 140,000 (aprox. per year).

Miguel, I have to disagree at all. You cannot even think the word CHEAP.
A brand new Grand Cherokee is priced near 550.000 new bolos (half a billion of old bolivares). This is 127.000 cadivi dollars or 105.000 sitme dollars. And car assemblers receive cadivi dollars for parts importation. Same suv in the US is priced near 35000 bucks. You may take out Vat or Iva , take duty taxes ( ckd parts pay 10 to 20 percent, not 40 percent). At the end, net price is more than doubling the US price.

Jeez you guys, that Cherokee does not exist, period. Cadivi dollars dont exist. period. Divide those 550,000 by Bs. 9 and that’s about where it should be in US$. About $50,000, more or less.

Is that expensive, yes. But I bought a very similar car two years ago, when the parallel rate was Bs. 8 at Bs. 200,000, that is 25,000 for a car that costs here in teh US 20,000 but always cost about 30,000 in Venezuela. That wa scheap and that was the case for years. Today, there are no Cherokees, there are no import permits for them period.

As to another view:

I dont believe in the existence of the Bs. as a currency.

I would put a 10% duty on most things and let the currency be the $.

I would eliminate price and exchange controls.

That’s my alternate point of view, but that is not what we have been living for the last 8 years and I stand by what I said cars have been cheap, period, if you could get them. Now they will be cheaper, but will not exist.

Miguel,
In a non-Chavista non-Chiripero Venezuela you would like to have the currency to be able to devalue and make the country more competitive. Otherwise you will find the country in such a situation as Greece is today…a thousand times worse. Not that we are not worse now, the country is much worse, but then it’s Chávez time and the whole thing hasn’t collapsed because of record oil prices

Yeah, I have been hearing that same argument for 30 years and we are still not competitive in most things but have had so many devaluations.

You cant compare Greece to what I am saying, Greece is part of the European Union and was getting low rate loans because it was part of the euro. If you dollarize the Venezuelan economy, we would be able to get loans at a good rate only as long as finances are well managed.

Greece would have defaulted already if it were not part of the union. Debt buyers would get what they deserve and the debt burden would be cut, but devaluation is the worst tax on the poor. Venezuela had a currency conversion system in place for decades, inflation was low and I believe oil economies can do that.

I don’t believe any currency should exist that can only be spent in the country of origin and cannot be converted outside. If the dollar is good enough for Correa, it should be good enough for Chavez. Or even Euros for that matter. Even Yuan, although grossly and artificially suppressed would serve better than B’s although I’m sure if you can convert Yuan to US in Miami.

Here’s an alternative to think about- what if the billions spent on weapons were spent on transportation and related infrastructure?Instead of military
helicopters- air ambulance services-
Tourists would have an easy time traversing the country-workers too,
goods shipped anywhere easily- such a boost to so many industries…

[…] It is indeed a revolution, just like Cuba, Venezuelans will be driving beaten down cars, or more romantically for a brainless revolutionary, they will be riding the donkeys or mules that their grandparents rode like the picture here. […]

Ok- here’s a plan that will stimulate the economy and help lots of people.
a.No tax on imports of cars -5 years old- economy cars only.
And, trucks, and vans. (On other types, suvs, luxury cars- increase the tax.)
b.No tax for 2 years on imports of these economy cars and trucks and vans.
c.Vehicles cannot be imported with more than 200,000 miles on odometer.
Naturally-most of these cars, trucks and vans will come from the US and
there is an abundance of said used vehicles.
d.Limit one per individual/household per year.
e. After 2 years a tax will be restored -but much lower than today’s 40%.
Say- 10-15% vat…
f.Same for tractors, farm equipment. Forklifts, etc.
Tell me – who votes for this? and who is against it and why?

Car prices advertised on the manufacturer’s webpage in Venezuela include VAT. Prices in the US are listed without sales tax or any other tax because it varies from state to state, therefore, it’s not accurate to compare direclty, unless you take VAT out of the Venezuelan price. Besides, cars assembled in Venezuela usually come in two flavors, basic or middle-of-the-road version, and fully equiped version. Sometimes cars are manufactured only in their top version. In the US market you can find very basic versions in which you then have to add quite some money in options (sometimes thousands of dollars) to make them equivalent to the Venezuelan version.

Finally, here is video proof that once upon a time, fuel economy was a selling point in Venezuelan car ads (it’s around the 0:15s mark):

I really see no benefit of having a plan to import used cars, there are no roads!!! We are importing gasoline!!

I would increase gasoline prices to FOB , dollarize the economy at Bs. 9 or so an stat building roads, I dont carre if people want to bring new or used cars. 10 % import flat fee, period, any clunker or car you want.

Easy, you can’t just say its zero for everything, we are not that competitive. You don’t want a complicated structure. Thus, much like sale taxes 10% on everything to help local industry and collect a little money for the Government. That’s it.

Affordability and increased efficiency. THese are good investments
for people.
Also, tractors, construction equipment, vans, trucks , economy cars
are NECESSITIES. This is just practical- not being socialistic…
And, saving money -when a surplus SURPLUS of very good used
vehicles and equilpment is readily available and easily shipped to
Venezuela- and a government deliberately puts a wall WALL up
that does nothing but hurt and stop development in Venezuela.
Thank you Chavez…

These cheaper used -good quality items are not available from
China or Russia or Iran.
I outfitted a construction company and saved a bloody fortune
I know I more than paid my salary by money saved year
after year and many of you can do the same.
“Saving is earning money too.”

“Gosh all of this has me wondering if it’s not more profitable to smuggle cars into Venezuela or smuggling gasoline out…………….I’m so confused!”
After a couple of nights in prison you will be able to think more clearly,
maybe with a little help from some new friends…

You know – the title- Non-existant-auto policy- actually -should be
stupidest auto policy by a stupid dictator in the whole world.
and the part about “going brainless” -well, of course-when
did Chavez ever do anything that really benefitted any industry.
Don’t you get the feeling that Chavez hates technology-even though
he drives tractors and jeeps and sits in jets,etc.
I wonder if Chavez knows how to repair a bicycle? Speaking of that
where are those Iranian bicycles??

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